Cut the red tape for city taxes

Sunday

Jun 30, 2013 at 12:01 AMJun 30, 2013 at 10:37 AM

Simplifying Ohio's Byzantine system of municipal income taxes has been harder than expected, but lawmakers should keep at this important task until they arrive at a bill that can win passage. They shouldn't stall the effort, as some municipalities are urging.

Simplifying Ohioís Byzantine system of municipal income taxes has been harder than expected, but lawmakers should keep at this important task until they arrive at a bill that can win passage.

They shouldnít stall the effort, as some municipalities are urging.

House Bill 5, co-sponsored by Republican Reps. Cheryl Grossman of Grove City and Michael Henne of Clayton, takes aim at a widely acknowledged problem: Companies doing business in more than one Ohio community face mountains of paperwork to comply with local income-tax laws that can be different in every municipality.

Itís not just that the rates differ; itís that Ohioís strong home-rule tradition allows each community to decide what constitutes residency, what counts as business income and a host of other technical issues.

Ohio has nearly 600 jurisdictions using nearly 300 different forms. For a small business doing work in multiple towns, filling out all those forms correctly can be an expensive nightmare. Itís not uncommon for businesses to spend more money preparing their taxes than the amount they actually owe.

This runs directly counter to the business-friendly climate state leaders are trying to establish.

The inconvenience could be especially costly, because Ohio is the only state to impose such a burden on its businesses. That could discourage companies from locating in the state or could force out those already here.

HB 5 would simplify things by establishing some common definitions, filing deadlines, penalties, appeal procedures and other provisions.

Despite the obvious appeal and the fact that similar bills have been introduced several times before, municipal-tax reform has been stalled in Ohio by cities and villages that fear the changes will reduce their tax revenues and diminish local control.

The bill would not, however, centralize collection of taxes. Although that idea has been suggested separately by Ohio Tax Commissioner Joe Testa, HB 5 would only reduce the number of different forms and rules faced by businesses.

Moreover, backers of the reform are willing to compromise to address those concerns, and have met extensively with groups representing municipalities.

Still, some losses to some cities are inevitable if Ohio is to develop a uniform system. Local governments are especially sensitive to these losses, given that they already have taken a financial hit from cuts in the stateís local-government fund, as well as the elimination of the estate tax.

But the value of making Ohio a far easier place to do business, and thereby generating more jobs overall, would outweigh those losses.

The bill has had multiple hearings in the House Ways and Means Committee, and representatives of the cities and villages reportedly are working on a substitute version that addresses some of their concerns.

This bill to streamline businessesí income-tax obligations shouldnít be shoved aside. To maintain the job-creation momentum the state has developed despite a modest economic recovery, officials canít afford to hold onto a tax system that slows everything down.